This Week’s ETF Virtual Conference Looks to Where the Industry Is Heading

The exchange traded fund industry is closing in on $3 trillion in assets and is showing no signs of letting up as institutions to retail investors continue to pile money into the investment tool.

On the upcoming annual online ETF Trends Virtual Summit on February 8, Ben Johnson, Director of Global ETF Research at Morningstar, Matt Hougan, CEO of Inside ETFs, and Tom Lydon, Editor and Publisher of ETF Trends, will tackle important questions such as: what’s next for the ETF industry as it approaches $3 trillion in assets? And: what are the key ETF strategies that will be popular for advisors in 2017?

The ETF universe has quickly expanded as investors enjoy the investment vehicle’s cheap costs, easy tradability and transparent nature. The industry enjoyed about a 14% growth rate in their overall assets for the year through mid-August, which was roughly the same rate of growth experienced by the industry over the prior 12 months, according to a IndexIQ note.

Among the fastest growing segment of the ETF space, smart beta or alternative customized index-based strategies have been increasingly popular as a way for investors to gain exposure to actively managed styles to enhance returns and diminish risks.

Almost 40% of U.S. equity assets under management are held in passive vehicles, or twice the level seen just a decade ago, according to a Goldman Sachs note. As money shifted out of actively managed mutual funds, there have been a huge influx of capital into passive ETFs – in just a decade, assets held in equity ETFs expanded to roughly one-third the size of equity mutual funds. Meanwhile, rules-based or smart-beta investing has grown on the heels of weak performance of active mutual funds and hedge funds in recent years.

The decline in active investing has been a huge boon for ETFs and may continue to support ETF growth. Since 2010, ETF trading has accounted for at least 25% of consolidated trading activity, compared to about 15% in the years leading p to the recent recession.

Large investors are also becoming a big factor in the growth of ETFs. According to Deutsche Bank, institutional and retail investors own 47% and 38% of ETF assets for asset allocation purposes, respectively.

Looking ahead, industry observers are waiting on how the newly inaugurated President Donald Trump will handle the new Department of Labor rules. If enacted as announced, the rules could be a catalyst to push many advisors toward lower cost structure of ETFs over active mutual funds, increasing the adoption of ETFs across the advisor channel.